Friday, August 15, 2008

This is strange. It's been eight business days and $100 lower for the price of gold bullion but still no inventory reduction at the SPDR Gold Shares ETF (NYSEArca:GLD).

It's clear to see all the prior occasions over the last year when a big drop in price occurred around the same time as a big reduction in inventory, late July and early August are good examples. The two have always gone together up until just the last two weeks - apparently, holders of GLD haven't been net sellers lately.As a result of lower prices and stable inventory, the inventory-to-gold price ratio shown below hit another new all-time high today at 0.84.One possibility is that most of the wild-eyed hedge fund managers have already liquidated their positions in GLD to buy financial stocks (or is it biotech this week?), and now, what's left are ordinary Joes like you and me.

The GLD ETF may start to serve as a useful proxy for investment demand.

Yes, I saw that, here's an excerpt for those too lazy to click on the link above:

"Twenty-eight years brokering silver & gold have not prepared me for what I met this morning. One of my wholesalers said he was not selling anything, only buying, until further notice. Another refused to give any prices until he adjusted his spreads. Another was spreading one ounce gold coins, normally at $7 - $8, at $25. Another said he was making no sales for immediately delivery or deferred payment, only sales for 30 days delivery paid at once. Premiums were high: Austrian 100 coronas, 4.7%; Sovereigns 5.2%; Krugerrands 6.8%, American Eagles 8.2% (none for immediate delivery), & Mex 50 pesos 4.5%. 90% silver was at $9,783 a bag, a whopping 6.7% premium (1368 cents an ounce on a 1282 market!). Silver American Eagles for 6 - 8 week delivery, 1586 or 23.7% premium.

But "premium" is only one way of looking at things, dividing the item's price by the spot silver price. Another way to view it is that physical prices have de-coupled from paper prices. The paper prices -- futures, ETFs, etc. -- no longer rule the market.

Physical prices are declaring their independence from paper pricing as those holding physical gold & silver refuse to sell it at prevailing paper prices. I have been expecting this to happen toward the top of the bull market, catalyzed by some paper purveyor's failure, but now? What can it mean? At the very least, the public is nourishing a gigantic hunger for silver & gold in their hands, and no place else.

By now all the leveraged silver & gold longs have been forced out, just as all the dollar shorts have been chastened, bruised, and beaten away. Either this is the greatest silver and gold buying opportunity of all time, or the end of a bull market."

Was just telling my dad that it wouldn't matter if it went to $0, if you can't get any. Took a delivery at $850 and glad of it. Could we be witnessing a major turning point? Seems like forever that big moves in spot could panic the physical market. An amazing time to be alive.